Foreign direct investment inflows to Malaysia: Do macroeconomic policies matter?

Abstract

Malaysia plans to become a high-income economy in the coming years via what is called the ETP (Economic Transformation Program). To achieve this, Malaysia requires a sufficient level of foreign capital and thus is implementing appropriate investment initiatives to stimulate economic activity. So far, Malaysia has only been able to attract a small number of foreign investors. With a relatively small amount of FDI flowing into the country, the expectations of the Economic Transformation Program (ETP) that heavily rely on FDI may be challenged. The current paper analyses how selected macroeconomic factors might impact the flow of FDI into Malaysia. The ARDL (Auto-Regressive Distributed Lag) technique was used together with the VAR (Vector Autoregressive Model) on annual data (1970-2017). The study has found that over time, appreciation of the local currency, openness, inflation and labour cost had a significant negative impact on the inward flow of FDI. Conversely, over the longer term, real interest rate and GDP growth produced substantial positive effects on FDI. The findings suggest that when aiming to create an attractive for FDI environment, it is necessary for governments to closely consider macroeconomic policies that lower both production and transaction costs of multinational enterprises.

Determinants of Foreign Direct Investment in Indonesia

“…[28] stated that the foreign direct investment in Korea leads to an increase in employment rate but in contrast decreasing the median weekly wage. This finding is in accordance to [29] where the labor cost has a significantly negative impact on the inward flow of FDI in Malaysia.…”

The impact of major macroeconomic variables on foreign direct investment in Nigeria: evidence from a wavelet coherence technique

“…It simply means when other factors are held constant, a 1% increase in trade will impact FDI inflows by 0.48%. The outcome complies with the result of Adebayo and Gambiyo (2020) and Awad (2020). (v) Export has a positive impact on FDI inflows.…”

“…This study was built on the study of Sultana (2016) and Awad (2020) to explore the influence of inflation, gross capital formation, economic growth, trade openness, and export on FDI inflows by incorporating gross capital formation into their model. The economic function, economic model, and econometric model are depicted in Eqs.…”

“…The authors found an insignificant relationship between FDI and inflation, while unemployment has positive and significant interaction with FDI inflows; However, no relationship was found between FDI inflows and average tax return. Awad (2020) examined the relationship between FDI inflows and selected macroeconomic variables in Malaysia. The author used ARDL and VECM to analyze this interaction utilizing data covering between 1970 and 2017.…”

Measuring the macroeconomic impact of economic diplomacy using VARFIMA model for Croatia 1990-2018

“…). In order to form the dataset of macroeconomic aggregates we employ the basic methodological approaches of economic policy making, particularly, multifactor productivity and labour productivity evaluation (Bilan et al, 2020), labour market analysis (Okuneviciute Neverauskiene and Rakauskiene, 2018), investments regulation (Awad, 2020).…”